Distance between Munroe and Duke LifePoint not a factor

Distance concerns now seem put to rest, and won't be a factor against Duke LifePoint as it competes against HMA/Shands for leasing rights at Munroe.

By Fred HiersStaff writer

The distance between Ocala and Duke University Medical Center in Durham, N.C. is about 600 miles. That geographic divide certainly concerned the officials considering a Duke LifePoint proposal to lease Munroe Regional Medical Center.

But last week officials visited a Duke LifePoint hospital in Marquette, Mich. — even farther from Durham than Ocala. And they liked what they learned.

Distance concerns now seem put to rest, and won’t be a factor against Duke LifePoint as it competes against HMA/Shands for leasing rights at Munroe.

Duke LifePoint bought the 315-bed Marquette General Health System in 2012. The formerly public hospital is 1,100 miles from Durham, and officials there say they benefited from Duke’s medical expertise and service lines.

“The distance factor was not a big deal,” said Marion County Hospital District Trustee Dr. Ravi Chandra, who made the trip. “I think (Duke’s clinical oversight) was done well.”

“You’re not an island anymore. You’re part of a group,” he said of Marquette after his inspection of the hospital.

Under the Duke LifePoint venture, LifePoint oversees the day-to-day operations of the hospitals and makes necessary capital improvements. Duke oversees the clinical standards and helps its hospitals offer new services.

Chandra learned the hospital held at least one or two clinical meetings each week with Duke medical officials and expanded its service line to include a new radiology/oncology program.

Under the Duke LifePoint organization, Duke would own 3 percent of the lease agreement with Munroe and get paid for the service lines it helps establish.

Under the HMA/Shands partnership, Shands would offer specialized and expert advice involving Munroe’s patient care. Shands would have no financial investment in the Munroe lease, but would have an option to buy a portion of the partnership later.

The Duke LifePoint purchase of Marquette included taking on the hospital’s long-term debt and pension liabilities, totaling about $160 million. The deal also included promising another $450 million in capital improvements, physician recruitment and acquisition of health care assets. Of that money, $23 million went to a medical foundation.

Duke LifePoint is offering Marion County Hospital District trustees nearly $140 million to lease Munroe and an agreement to invest another $200 million in capital and master plan improvements.

HMA/Shands is offering $200 million for the 40-year lease, with a similar $200 million promise for capital and master plan improvements.

“They gave … a pretty good presentation,” said Munroe board member Brian O’Connor, following his Marquette visit. “Did they alleviate that (distance) concern? Yes, they put the effort forward to engage in Marquette.”

Also last week, Munroe officials visited HMA-owned Physicians Regional Medical Center in Knoxville, Tenn. It is the flagship hospital of the seven-hospital group Tennova Healthcare in Tennessee. HMA purchased the not-for-profit group for $525 million in 2011.

“The visits left me feeling more comfortable that both companies would stand behind the offers they make,” O’Connor said. “Now I think it’s really up to which is the best option. I could argue the case for either side and feel good about it.”

Munroe is owned by the state-sanctioned Marion County Hospital District and is overseen by seven trustees who are appointed by the County Commission.

The trustees lease the hospital to Munroe Regional Health System Inc., which is overseen by a 13-member board, some of whose members also are district trustees.

Without property tax support — a ballot measure failed in November — Munroe leadership says it must lease the hospital to a separate company to invest and keep the hospital competitive.

Once trustees lease the hospital, they plan to oversee the lease payment, using it to fund community health issues and initiatives.

Dr. Ken Marino said his visit to Marquette led him to conclude Duke’s distance doesn’t keep it from overseeing clinical standards or helping set up new services.

Meanwhile, Shands, which is less than an a one hour drive from Ocala, also has an interest in Munroe doing well under a Shands/HMA banner, Marino said, because Shands might one day buy a stake in the partnership.

Marion County Hospital District Trustee Jon Kurtz said he was impressed by Duke’s commitment in Marquette.

“I think we understand the Duke reach more than we did before,” Kurtz said. “I don’t think the distance matters how they (Marquette hospital staff) described the (Duke/Marquette) clinical integration. Whether it’s 30 miles or 500 miles, it’s still a people business.”

As for nearby Shands competing with Munroe for patients if Munroe decides to lease to Duke LifePoint, Kurtz said he wasn’t overly worried.

“They’ve already been our competitor for how many years?” he said. “If they haven’t made many inroads now, why would they make them … if we lease to Duke LifePoint?”

Tennessee-based LifePoint owns or leases nearly 60 hospitals in 20 states. Its only Florida hospital is the relatively small Putnam Community Medical Center in Palatka. LifePoint executives admitted they would be interested in acquiring more Florida hospitals.

HMA, based in Naples, already owns or operates 22 hospitals throughout Florida. It also owns or leases nearly 50 other hospitals in 14 other states.

Meanwhile, some trustees say the difference in financial offers can’t be ignored, despite the potential new service lines offered by the academic Duke heavyweight.

“I look to where the money (from the lease) is going to be spent in the long run. It’s going to be spent on our community,” said Trustee Larry Strack.

“I’m not a doctor, so it’s hard for me to evaluate the value between the Shands and Duke alternatives. But I don’t think it’s worth $63 million,” he said.

The goal of the trustees is to find a good lease partner, and any academic partnerships “was icing on the cake,” Strack said.

Strack also warned that Duke LifePoint may not be successful in expanding into Florida and that Munroe could continue as a stand-alone hospital if it sides with Duke.

“There’s no guarantee in life,” Strack said. “That $63 million is not in the future; it’s now.”

Strack did not visit Marquette or Physicians Regional.

Trustee David Cope said Shands’ close proximity would be a problem if Munroe went with Duke. After all, Shands could then become a full competitor.

HMA has proven it can turn troubled hospitals around in a competitive market, is offering the most money and can also bring the academic expertise of Shands to the table, he said.

Cope said that by turning a blind eye to what HMA is offering, “looks more and more (like we would) be shooting ourselves in the foot.”

The trustees and hospital officials will meet April 18 to discuss the proposed Shands/HMA and Duke Life Point lease offers.